Coinbase vs. Prime Trust—Battle Over Customer Funds Heats Up!

Coinbase has filed an amicus brief in the Prime Trust bankruptcy case. The brief argues that customer assets should be protected and urges the court to follow the principles in UCC Article 8.

Paul Grewal, Coinbase’s Chief Legal Officer, announced the filing on Twitter, pointing out the broader implications for the entire financial industry.

Here are the key points from the brief:

• Customer owns the assets: Funds held by custodians should not be recharacterized as part of the bankruptcy estate.

• Financial market stability: Upholding UCC Article 8 means custodians are trusted across industries.

• Legal consistency: Courts have done the same in traditional financial markets.

Disregarding these protections could put billions of dollars of customer funds at risk across the industry. So clear regulations are more important than ever.

Legal Protections Under UCC Article 8

UCC Article 8 is a key legal safeguard ensuring that customer assets held by custodians remain separate from the custodian’s bankruptcy estate. This provision applies to both digital assets and traditional financial instruments.

Coinbase’s argument centers on the legal precedent that has long protected customer assets at major financial institutions, including Bank of New York (BNY) and Depository Trust Company (DTC). The company asserts that these protections should extend to digital asset custodians, preventing a dangerous precedent that could undermine investor confidence.

Key takeaways from Coinbase’s amicus brief:

• Customer ownership of assets: Funds held by custodians should not be reclassified as part of bankruptcy estates.

• Financial market stability: Upholding UCC Article 8 reinforces trust in custodians across industries.

• Legal consistency: Courts have historically upheld similar protections in traditional financial markets.

The filing highlights that disregarding these protections could jeopardize billions of dollars in customer funds across the industry, making clear regulatory guidelines even more critical.

Coinbase Expands Global Regulatory Efforts

Coinbase is also expanding its global regulatory footprint. The company just got a Virtual Asset Service Provider (VASP) license in the UK, so we can offer more crypto and fiat services. This is part of our mission to be compliance-driven and to help grow digital asset adoption globally.

Coinbase executives, including Paul Grewal, will also be testifying in the upcoming “Operation Chokepoint 2.0” hearings. That’s to challenge the alleged banking restrictions on crypto businesses.If the court follows UCC Article 8.